The Empty Vaults of London

With the price smashes of the past few weeks, the increasing desperation of the bullion banks seems palpable.

First, a recap (and don't click the "play" button on the podcast player just yet)...

The raid Tuesday occurred just as price reached firmly above $1320 and the all-important down trendline.

The raid also occurred during a period of steeply falling GOFO rates.

How and why did this happen? Let's start with the "why".

As explained last week, bullion bank desperation is increasing. The gold vaults of London are nearly empty and there is little, if any, readily-leasable gold available for the banks to use to create paper metal.

And now go ahead and click the podcast player button. The voice you hear is Alasdair Macleod of GoldMoney. He was the guest for last week's subscriber webinar and, unprompted, he twice addressed the "empty vault" story.

Additionally, the GLD has already been raided for over 550 metric tonnes of gold since the start of 2013. IF WESTERN INVESTMENT DEMAND WAS TO RETURN TO THE GOLD MARKET, from where would the gold come? As Ken Hoffman said in the video linked above, "there isn't any gold left". Therefore, price must be held back at all costs because sentiment must remain negative. When the charts look to turn positive, as in mid-March or earlier this week, desperate measures must be taken.

And now the "how". With GOFO dropping each day, there appears to be no readily-leasable gold for the banks to use to create the naked shorts with which to bomb and raid the market. In fact, since last Tuesday, GOFO rates have fallen even further. Check this out:

One-month: -0.118% (the lowest since 8/22/13 and within spitting distance of the -0.1267% low since "the new normal" began back at the price lows last summer)

Two-month: -0.088% (more than double the lowest rate of all seen in 2014 and lowest since 8/23/13)

Three-month: -0.058% (4x the lowest it has been so far in 2014. This rate fell to -0.0917% on 8/22/13)

Six-month: -0.006% (the first time it has been negative since 8/23/13. The low last summer was -0.020%)

Twelve-month: +0.076% (this may seem like a lot but, as recently as 3/21/14, it was +0.174% and the lowest ot got in all of 2013 was +0.1283%)

Of course, the usual disinfo suspects want to write this all off as a function of low LIBOR rates and ZIRP. I'll simply ask you (and them) these two questions?

If that's the case, why did negative GOFO only become the norm last summer at the conclusion of the $600 selloff when ZIRP has been in place since 2008?

Can you explain this chart?

And here's some additional context...Note the blue circles within the green areas. It is possible for raids to occur within the general, negGOFO uptrend. But how? If readily-leasable gold is in such short supply, where are the contracts coming from that are being dumped in sufficient quantity to crush price and temporarily "break" the market? The answer is the huge, cornering NET LONG position of JPMorgan.

When they used the $600 selloff to flip from 75,000 NET SHORT to 75,000 NET LONG, I and many others thought it might be a sign that JPM had cornered the Comex gold market for the purpose of controlling it. Maybe they even planned to break the Comex and then take it over. Nope. I was wrong. We now know through the Bank Participation Report data that JPM has been liquidating this position over the past six months in a vain attempt to control the market, manage the ascent and manipulate investor sentiment. The latest BPR confirmed that their position has fallen to half of what it was at its peak late last year.

It was the absence of readily-leasable, central bank gold that left JPM as the manipulator du jour last Tuesday. I believe it was JPM which summarily dumped up to 10,000 contracts in the early Comex trading, breaking the market for 10 seconds. http://www.zerohedge.com/news/2014-04-15/gold-futures-halted-again-latest-furious-slamdown And it was mission accomplished. Price was driven away from $1320. It fell below the critical 200-day MA for a time and then closed below that important barometer on Thursday. The bullish sentiment of early 2014 still hasn't returned even with the latest lousy employment report, the geo-political uncertainty of Ukraine and the dovishness of Chair Fellen.

The smash of last Tuesday also provided "cover" for a huge raid of the GLD on Wednesday and Thursday. After vomiting up 8.39 metric tonnes of gold from its "inventory" Wednesday and another 3.20 mts on Thursday, the total alleged holdings of the GLD fell back to just 795.14 mts. This leaves the "inventory" of the GLD down YTD by over 3 tonnes. This while price is up $94 or about 8%!

Clearly, the GLD is still being used to provide much-needed supply for Asian demand. However, as Ken Hoffman said, "there is no gold left (for Western demand)". Thus, even with prices rallying in 2014, no new gold has found its way into the GLD "inventory".

I've often said that it is unwise to ever give date and price in the same sentence. Therefore, I only do it when I feel extraordinarily confident that I am seeing things clearly. I'm willing to do so now, however, but it's a little different this time. Rather than price, it's a general market condition.

I now believe that we are truly witnessing the end of the era. We've all been waiting for the day when the fractional reserve bullion banking system would fail. I believe now that that day is very close. Maybe not next week or even next month but NOT 2017, either. Sometime very soon, likely before the end of 2014.

Now, I may end up looking quite foolish by 12/31/14. You've heard me say countless times that "you should never underestimate the power of TPTB to hold things together". However, in this instance, I'm confident that the jig is almost up. Why?

JPM doesn't have an infinite amount of longs to dump. Their remaining position is likely under 30,000 contracts.

Negative GOFO persists as the new normal, present more than half the time since 7/5/13.

Chinese/Asian demand will not cease and is up considerably versus 2013.

Indian demand is likely to ramp significantly higher after the elections conclude.

Fighting/controlling/manipulating "Western" investment demand is a losing battle as price cannot be driven to zero.

Recognition that "the vaults are empty" will be generally accepted as true by later this year.

A dollar/petrodollar crisis is very likely in the coming months.

All of these factors will soon combine to break the desperate hold of The Bullion Banks. That said, as their hold frays, you can be certain that they will attempt increasingly desperate measures to hang on. Therefore, you must be prepared to endure these assaults and remain steadfast. Those that do, and those who continue to use the remaining hours to stack and prepare, will find themselves protected against the financial calamities that will most assuredly follow.

155 Comments

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...at least in the short term as the desperation grows. Thus the warning that concluded this post:

"All of these factors will soon combine to break the desperate hold of The Bullion Banks. That said, as their hold frays, you can be certain that they will attempt increasingly desperate measures to hang on. Therefore, you must be prepared to endure these assaults and remain steadfast."

Even though I have been adding to my stacks every month or two I have been saving up a goodly amount of dry powder (for me anyway) figuring they would pull a hail mary beatdown before the final blowup. Looks like it's just about time to deploy the backup.

A larger and more significant gold-repatriation program was launched by Germany in 2013. Germany holds 3,391 tonnes of official gold and is currently the world's second-largest holder after the United States. At the end of 2012, German gold was located as follows: 1,051 tonnes in Frankfurt; 1,526 tonnes in New York; 441 tonnes in London; and 374 tonnes in Paris. On January 16, 2013, the Deutsche Bundesbank, the central bank of Germany, announced an eight-year plan to repatriate all the gold in Paris and 300 tonnes of the gold in New York back to Frankfurt. The gold in London would be left in place, and at the end of the repatriation plan in December 2020, German gold would be 50 percent in Frankfurt, 37 percent in New York, and 13 percent in London.

Commentators quickly fell upon the fact that the 300-tonne transfer from New York to Frankfurt would take eight years to complete as prima facie evidence that the New York Fed did not have the German gold in it's vaults or was otherwise financially embarrassed by the request. But the Deutsche Bundesbank does not want the gold returned quickly. It prefers to have it in New York, where it can more efficiently be used for market manipulation. The Deutsche Bundesbank did not want to request the transfer at all but was pressured to do so by political supporters of Angela Merkel, who was facing reelection in September 2013. The physical security of Germany's gold had become a political issue in the Bundestag, the German parliament. The Deutsche Bundesbank's announced plan was merely a way to defuse the political issue while still leaving most of Germany's gold in New York. Even after full implementation of the plan in 2020, Germany will still have 1,226 tonnes in New York, an amount greater than the total reserves of all but three other countries in the world. It is more convenient for the Deutsche Bundesbank to have it's gold in New York, where it can be utilized in gold swaps and gold leases, as part of central bank efforts to manipulate gold markets. Still, a significant amount of gold is on it's way to Frankfurt-part of a global movement to repatriate national gold.

Everything is by design to make Obama look good, its just the way it is. If the dollar collapse comes, it will be bad for most tied to paper and electronic dollars, and Obama will still look good, it's just the way it is.

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